 |
||||||||
 |
||||||||
|
||||||||
|
Taking on the broadband Goliaths
By DAVE GUSSOW
Yet Eric Feinstein, the president of Internet Junction in Tampa, doesn't view competing against Internet service providers AOL, Earthlink and Road Runner as a David and Goliath battle. After all, he doesn't have to slay the Internet giants to succeed. "Maybe a speck of sand on a beach would be a better way of looking at it," Feinstein said with a laugh. "As long as they don't kick my little speck off the beach, I'm happy." Feinstein can afford to laugh a little, even with what would seem to be daunting odds. In December, Internet Junction won the right to share Time Warner's cable lines in the Tampa Bay and Orlando areas when the Federal Trade Commission approved a deal between the 5-year-old company and Time Warner.
Now, cable modem service will set Feinstein apart from dozens of other small, locally operated Internet service providers that offer Internet connections over conventional phone lines, either through slow dialup service or higher-speed digital subscriber lines (DSL). And Feinstein says he has advantages over the handful of widely-known national providers that will share Time Warner's cable lines and compete for customers. "Would you rather be in a market with hundreds of competitors with the same cost constraints, seldom really owning your own destiny because you have the telephone company (to deal with)?" Feinstein asked. "Or would you rather be in a market with four or five competitors, where they're all institutional competitors?"
The industry is making a federal case of it, asking Congress and the White House to make high-speed Internet access a national priority for security and economic reasons. For years, experts have suggested that small Internet providers would not survive, but thousands are still out there. And now Internet Junction gets to compete on new turf. "They've grown to 20,000 subscribers," said Michael Goodman, an analyst with the Yankee Group in Boston. "They've been competing against Earthlink, AOL and MSN in the dialup world, so why not (in cable)?" Internet Junction made its mark in the bay area with its $9.95-a-month dialup access, compared with $23.90 a month for AOL. Feinstein boasts about how Internet Junction became the biggest locally operated Internet access provider. And he's particularly pleased that many people find out about the service from their neighbors. "In this area, there are only two dialup providers that have a bigger installed base," Feinstein said. "It's, of course, AOL and Verizon. We have a bigger installed base than Earthlink does here and AT&T does here and the Microsoft Network does here. Do they have better brand recognition? Absolutely. But word of mouth is pretty powerful." A business planIt didn't take long for word about Internet Junction and its low prices to get around. Feinstein started the company in 1996 after leaving Digital Equipment, where he had worked as a network engineering manager in Tampa. He put a lot of his money, including his retirement savings, into the approximately $250,000 in startup costs, and he coaxed investments from family and friends. His business plan was based on the $9.95 monthly rate, and he needed at least 2,000 subscribers to make it work. At the time, the average local Internet service provider had about 500 subscribers at rates typically around $19.95. "There were a lot of naysayers," Feinstein said. But in less than six months, Internet Junction had its 2,000 subscribers. Feinstein and his staff worked 100-hour weeks and took no pay for months to get the company off the ground. "The beginning of Internet Junction was a cordless phone and index cards and phone books all over my work area at home," said Mary Rickert, vice president of marketing and another Digital Equipment alum. To keep his costs down, Feinstein decided to concentrate on a compact geographic area. Initially, it was only Pinellas and Hillsborough counties; it later expanded into Pasco, Manatee, Polk and Sarasota counties. The company's growth spurted. By fall 1997, it had 7,000 subscribers. It reached 10,000 by spring 1998. As other companies increased access prices, Internet Junction maintained the $9.95 price for residential dialup and vows to continue to do so. In fact, Feinstein said because equipment and phone charges are less now, he makes more profit on those accounts than he did in 1996. Feinstein would not reveal revenues for the privately held company, although he said it is profitable and gave this breakdown: Its subscribers are 60 percent residential, yet 60 percent of its revenues are from business customers, who pay more for speedier connections, Web hosting and Web design services. If all the approximately 12,000 residential customers used the $9.95 plan, that alone would produce revenues of more than $1.43-million a year. At times, the company had difficulty keeping up with its growth, sometimes not having enough phone lines or equipment to handle everyone. And Feinstein had to deal with issues out of his control, such as phone company problems. "There were busy signals," he said. "That was a key element as far as customer service and satisfaction that I made a point of never being behind" again. "Price definitely will get you customers. But after you have them, then you have to keep them." Small providers have always prided themselves on service and a rapport with customers. Feinstein remembers subscribers calling in the early days just to say "Hi." And he thinks customer service will make a difference when people choose a cable modem provider. "You can't call up AOL and say, "I don't know how to use Outlook Express. Can you help me?' " Feinstein said. "There's definitely a reason why someone goes to AOL. There's a reason why someone goes to Earthlink. There's also a reason why someone goes to Internet Junction." The company gets about 1,500 tech support calls a week, plus 1,000 for sales and a few hundred for billing, Feinstein says. Greg Ladgin answers a tech support call from a subscriber having problems with his password. Ladgin, 21, patiently asks questions and gives some directions. The first two tries don't work, then Ladgin discovers the problem. The man had inadvertently made a letter in his name upper case. "Unbelievable," the caller said. "A little thing like that." Getting the deal
Time Warner had not yet established the process it would use to select providers, but the companies talked informally for months. July proved to be an important month. Verizon increased the fees it charged Internet Junction and other providers for its DSL service. Feinstein said wholesale costs were more than retail. "I felt my back was against the wall," Feinstein said. "So I just knocked on doors." By then, Time Warner had hired an executive to deal with local and regional providers on the access issue. The talks with Internet Junction picked up. Because of the confidentiality agreement, neither company would discuss specifics about the negotiations. Feinstein and Rickert characterized the process as an information exchange. There was no application to fill out. Mike Luftman, Time Warner's vice president of corporate communications, said some providers approached Time Warner on their own, with Internet Junction among them, and Time Warner contacted others. "Internet Junction, like any ISP that we would successfully complete an agreement with, has the kind of financial backing that makes it a viable competitor in the marketplace," Luftman said. "They do have something that will provide our customers in Florida with a valuable additional choice." In addition to the number of subscribers and a company's financial health, Luftman says, Time Warner wants companies that can adjust to a setting different from what's familiar to the typical Internet service provider. With a phone company, a provider simply buys the lines and capacity it needs. "It's really a multilayered relationship between the ISP and cable company," Luftman said. "It's a partnership. We do an affiliation. They're not just buying capacity. We're jointly managing a business together for our mutual benefit and the mutual benefit of our customers." That means when a consumer calls to sign up for cable modem service, a Time Warner customer service rep has to give the caller all options available, not just its own Road Runner or its new corporate relative, AOL. Time Warner will do all the installations. Customer service and tech support will be shared; Feinstein said details on that are being worked out. Billing and marketing may be shared. "Our experience working with Earthlink has been very positive," Luftman said. "And I think it's positive for both companies." While Time Warner was ordered to provide cable customers with at least five choices, including Road Runner and AOL, the company says more might be added. That would be good news for other small providers, some of which were in the dark about the process. "It wasn't that we didn't want to do it," said Suzi Pilat, vice president of Intelligence Network Online in Clearwater. "We didn't know of the offer. It wasn't ever presented to us or any other ISPs that I know of." The Federation of Internet Solution Providers of the Americas (www.fispa.org), a trade group representing mostly smaller providers in Florida, approached Time Warner and signed a confidentiality agreement. Time Warner preferred to deal with individual companies, not a group, said Joe Marion, the group's executive director. He considers the exercise a success nonetheless. "Time Warner was willing to do a deal with a company like Internet Junction," Marion said. "That's exactly what we were asking for. The real focus needs to be on the consumer. This gives the consumer an option to go to an independent party who can offer an alternative high-speed connection." Trying to stay true to its low-cost roots, Internet Junction will charge $41.95 a month for cable access. It's the same price as Earthlink, $3 less than Road Runner and $13 less than AOL's most expensive plan. Internet Junction also will offer some added features, Feinstein says, such as a free dialup account for backup and a free Web address. "That's where being a speck of sand helps us," Feinstein said. "We can gain efficiencies because of our size and because of our locality. I find it hard to believe that Earthlink can be profitable. I know what my margin is at $41.95." He would not discuss how much he has to pay Time Warner. The startup costs for cable are manageable and the company has ample reserves to cover it, Feinstein says. Though he expects to lose money at first, Feinstein says it may take only a few hundred cable subscribers for him to break even, depending on how the connection between his company and Time Warner is handled. As for the cable deal's reach into Central Florida, Internet Junction has started offering dialup service in Orlando. Feinstein doesn't expect that covering additional territory will mean increasing its staff much, if at all. He doesn't plan to open an office in Orlando, continuing to handle the company's operations from its 4,500-square-foot office space in a small strip center on W Hillsborough Avenue near Oldsmar that Feinstein owns.
Internet Junction's Web page (www.ij.net) is a vanilla affair, offering basic links to news, entertainment and other features on the Web, with few of the flashing graphics found on other Web pages. But it lets customers do everything from sign up for service to cancel, which AOL requires users to do by phone. "Why should I hold you hostage?" Feinstein asked. "If you want to leave, go ahead and leave." Feinstein and Rickert says there were no moments during the talks with Time Warner when they feared they wouldn't get the deal. The only uncertainty arose when the Federal Trade Commission was considering the proposal. When the word came on Christmas Eve that the deal had been approved, it made for an early holiday celebration. "To say we were ecstatic would be minimizing it," said Rickert, who in the early days worked for stock in the company instead of pay. "I danced." - Dave Gussow can be reached at gussow@sptimes.com or (727) 445-4228.
 © 2006 • All Rights Reserved • Tampa Bay Times
490 First Avenue South • St. Petersburg, FL 33701 • 727-893-8111 
|
From Tech Times
From the AP |
For consumers, the added competition in offering cable connections to the Web will mean more choices, as well as a somewhat broader price range. But it comes when the high-tech industry seems frustrated that more consumers aren't switching from slower dialup connections over phone lines to speedier, more costly cable and DSL options.
